The Federal Reserve’s policy panel mulled at its Dec. 9 meeting getting rid of a pledge in its post-meeting statement to keep interest rates low for a “considerable period,” meeting minutes released on Thursday said.
The minutes showed “a number” of members of the Federal Open Market Committee felt deleting the phrase “for a considerable period” would enhance the panel’s flexibility, though a majority disagreed. At the panel’s most recent meeting on Wednesday, the phrase was replaced by the observation that the central bank “can be patient,” puzzling some analysts.
"All the members saw merit in associating it more clearly with economic conditions, specifically the persistence of quite low inflation and slack in resource use, as opposed to only having it appear to be linked only to the passage of time,” the minutes of the December meeting said.
The December minutes may help clear up an on-going debate in markets as to how much thought the FOMC put into making the wording change this week, a move that some regarded as clumsily opening the door for a rate hike sooner than previously thought.
The committee left its main policy lever, the federal funds rate, untouched in December, as they saw little risk from inflation, and rates also were unchanged on Wednesday.
“For the near term, however, members saw substantial benefit in maintaining an unchanged policy stance and considerable risk in taking preemptive action that could prove to be unneeded against potential inflation, with associated costs to economic performance,” the December minutes said.
The minutes also showed some Fed members’ worries over the ballooning U.S. budget and current account deficits. With the budget, the members were concerned about “possible adverse effects” on financial markets and the economy “over a longer horizon,” while “large current account deficits and their potential correction added uncertainty about the longer-term prospects for the U.S. economy.”